ActiveVATPublic ClarificationVI. Anti-Abuse and Compliance Measures

VAT Public Clarification VATP047 - Application of the Reverse Charge Mechanism on Metal Scrap trading among UAE VAT Registrants

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Summary

This Public Clarification clarifies the scope and application of Cabinet Decision No. 153 of 2025, which introduces an obligation to apply the reverse charge mechanism on supplies of Metal Scrap between VAT Registrants in the UAE. Under the reverse charge mechanism, suppliers of Metal Scrap to other Registrants who intend to use such Metal Scrap for resale or Processing shall not account for VAT on such supplies; instead, the recipient accounts for the Due Tax.

The clarification defines Metal Scrap as ferrous or non-ferrous metal waste that has commercial value and is useable following its Processing, including goods which primarily consist of such materials (e.g., used lead-acid batteries). The mechanism only applies where the recipient intends to resell the Metal Scrap or use it in Processing, and both parties are VAT Registrants who meet specific compliance requirements.

The supplier must receive and retain written declarations from the recipient confirming VAT registration and the intention to resell or process the Metal Scrap, verify the recipient's registration status using the FTA's TRN verification tool, and clearly indicate on the Tax Invoice that the reverse charge mechanism applies. The recipient must provide these declarations prior to the date of supply and account for VAT in Box 3 of its Tax Return, recovering the Recoverable Tax in Box 10.

Where conditions are not met, the default rule applies: the supplier accounts for VAT at the standard rate, and critically, the recipient is not entitled to recover Input Tax under Article 54(1)(a) and (b) of the VAT Law. The reverse charge mechanism does not apply to Direct or Indirect Exports of Metal Scrap, which remain subject to normal zero-rating rules if conditions are met.

Cabinet Decision No. 153 of 2025 was issued pursuant to Article 48(8) of Federal Decree-Law No. 8 of 2017 on Value Added Tax.

Key points

Cabinet Decision No. 153 of 2025 introduces the reverse charge mechanism for Metal Scrap trading among UAE VAT Registrants, effective from 14 January 2026
Metal Scrap is defined as ferrous or non-ferrous metal waste that has commercial value and is useable following its Processing
Metal Scrap may include goods which primarily consist of materials meeting the definition (e.g., used lead-acid batteries where lead represents the majority composition)
The reverse charge mechanism applies only when the recipient intends to resell the Metal Scrap or use it in Processing
Processing means the conversion of Metal Scrap into materials that can be used in manufacturing new products, whether by repairing, recycling, or any other method
Under the reverse charge mechanism, the supplier must not account for VAT on supplies and must not report such supplies in its Tax Return (Article 2(1)(a) of Cabinet Decision No. 153 of 2025)
The recipient is required to account for the VAT on the transaction and is responsible for all Tax obligations resulting from such supply (Article 2(1)(b) of Cabinet Decision No. 153 of 2025)
Prior to the date of supply, the recipient must provide two written declarations to the supplier: (1) intent to purchase Metal Scrap for resale or Processing purposes, and (2) confirmation of VAT registration including VAT registration number (Article 2(3)(a) of Cabinet Decision No. 153 of 2025)
The two declarations may be combined into a single document
Prior to the date of supply, the supplier must: (1) receive and retain the declarations, (2) verify the recipient is a Registrant using the FTA's TRN verification tool on the FTA website, and (3) indicate clearly on the Tax Invoice that the supply is subject to the reverse charge mechanism (Article 2(3)(b) of Cabinet Decision No. 153 of 2025)
The recipient must declare supplies in Box 3 of its Tax Return and may recover Recoverable Tax in Box 10 (not Box 9)
If the recipient does not provide the required declarations prior to the date of supply, the conditions are not met and the supplier must charge VAT at the standard rate and report in Box 1 of its Tax Return
Where conditions are not met, the recipient is not entitled to recover Input Tax under Article 54(1)(a) and (b) of the VAT Law (Article 2(4) of Cabinet Decision No. 153 of 2025)
Cabinet Decision No. 153 of 2025 does not apply to Direct Exports or Indirect Exports of Metal Scrap (Article 2(2) of Cabinet Decision No. 153 of 2025)
If export conditions for zero-rating under Article 45(1) of the VAT Law are met, such exports shall be reported as zero-rated supplies by the supplier
Cabinet Decision No. 153 of 2025 was issued pursuant to Article 48(8) of Federal Decree-Law No. 8 of 2017 on Value Added Tax
Effective date: 14 January 2026 for all Metal Scrap supplied on or after that date
All other types of scrap materials (paper, plastics, glass, textiles, organic waste, rubber) do not fall within the scope and are subject to normal VAT rules
Where Metal Scrap is acquired for internal use (e.g., maintenance works, repairing storage racks, fences, structural supports), the recipient is not regarded as having an 'intention to resell'

Full text · 2,523 words

VAT Public Clarification

VATP047

Application of the Reverse Charge Mechanism on Metal Scrap trading among UAE VAT Registrants

Issue

Cabinet Decision No. 153 of 2025 on the Application of the Reverse Charge Mechanism on Metal Scrap Trading among Registrants in the State for the Purposes of Value Added Tax ("Cabinet Decision No. 153 of 2025") introduced an obligation to apply the reverse charge mechanism on supplies of Metal Scrap between Registrants, and requires both the supplier and the recipient to meet additional compliance requirements with effect from 14 January 2026.

The purpose of this Public Clarification is to clarify the scope and application of Cabinet Decision No. 153 of 2025, and the changes resulting from its issuance.

Summary

Registrants¹ supplying Metal Scrap² to other Registrants who intend to use such Metal Scrap for resale or Processing² shall not account for VAT on such supplies but the Due Tax¹ on those supplies shall be accounted for by the recipient of the Metal Scrap ("Recipient") under the reverse charge mechanism, subject to the conditions set out in Cabinet Decision No. 153 of 2025.

Where the conditions specified in Cabinet Decision No. 153 of 2025 are not met, the default rule applies and the supplier of Metal Scrap shall account for VAT on the supply.

In such case, the Recipient will not be entitled to recover Input Tax¹ under Paragraphs (a) and (b) of Article 54(1) of the Federal Decree-Law No 8 of 2017 on Value Added Tax, and its amendments ("VAT Law").^3,4

Cabinet Decision No. 153 of 2025 was issued pursuant to the mandate provided by Article 48(8) of the VAT Law.⁵

Detailed discussion

Scope of goods – Metal Scrap

The reverse charge mechanism under Cabinet Decision No. 153 of 2025 only applies to Metal Scrap, i.e. to ferrous or non-ferrous metal waste that have commercial value and is useable following its Processing.²

Consequently, all other types of scrap materials, e.g. paper, plastics, glass, textiles, organic waste and rubber, do not fall within the scope of Cabinet Decision No. 153 of 2025 and are, therefore, subject to the normal VAT rules.

Metal Scrap may include Goods which primarily consist of materials that meet the above definition.

For example, used lead-acid based batteries that have reached the end of their life, would be considered as Metal Scrap where lead represents the majority of the composition of the product, and this lead would be the main component which would be extracted from Processing, even where the overall battery includes a small quantity of other materials, such as plastic or electrolytes.

Scope of Transactions –Metal Scrap to be used for resale or in Processing

Metal Scrap transactions will only fall within the scope of Cabinet Decision No. 153 of 2025 if the Recipient intends to resell the Metal Scrap or use it in Processing.⁶

The term "resell" refers to Metal Scrap being sold as part of the Recipient's Business¹ to trade in such Metal Scrap.

The resale by the Recipient can be at a wholesale or retail level.

A Recipient who acquires the Metal Scrap for use in the course of its Business, other than for Processing, is not regarded as having an "intention to resell".

For example, where Metal Scrap is acquired for internal maintenance works, such as repairing storage racks, fences, or structural supports within the Recipient's premises, the Recipient is not regarded as having acquired the Metal Scrap with the "intention to resell".

The term "Processing" of Metal Scrap means the conversion of Metal Scrap into materials that can be used in the manufacturing of new products, whether by repairing, recycling, or any other method.²

For example, if the Recipient acquires Metal Scrap, which will be converted into a new product, such as construction or building material or new car parts, the Recipient would be regarded to acquire the Metal Scrap with the intention of Processing.

Reverse charge mechanism

Taxable Persons¹ are, generally, required to impose VAT on all its Taxable Supplies.^1,7

As an exception to the above, the responsibility to account for VAT on supplies of Metal Scrap that fall within the scope of Cabinet Decision No. 153 of 2025 is on the Recipient, provided that all compliance requirements are met.⁶

The VAT treatment and reporting by the supplier and Recipient will be as follows: ⁶

a. The supplier must not account for VAT on its supplies of Metal Scrap to the Recipient, and must not report such supplies and the related VAT in its Tax Return.¹

b. The Recipient is required to account for the VAT on the transaction and is responsible for all Tax obligations resulting from such supply.

The Tax treatment and reporting obligations outlined above will only apply if the following requirements are met:⁸

The supplier supplies Metal Scrap to a Recipient who purchases such Metal Scrap with the intention to resell or use it in Processing.
Both supplier and the Recipient are Registrants.
The supplier retains a written declaration from the Recipient confirming its registration for VAT, and indicating that the Metal Scrap is acquired with the intention to resell or to use it in Processing.

Exclusion –Direct and Indirect Exports

Cabinet Decision No. 153 of 2025 does not apply where the supplier makes a Direct Export⁹ or Indirect Export⁹ of Metal Scrap. If the conditions for zero-rating are met, such exports shall be reported as zero-rated supplies.¹⁰

Consequently, where the export qualifies for zero-rating, the normal VAT rules apply and the supplier is required to report the zero-rated supply in its Tax Return.

Compliance requirements for the application of the reverse charge mechanism - recipient

Prior to the date of supply, the Recipient must provide the following two written declarations to the Supplier in respect of each supply of Metal Scrap:⁸

a declaration indicating its intent to purchase Metal Scrap for the purposes of reselling or to use the Metal Scrap in Processing, and
a declaration confirming that it is a Registrant for VAT purposes, including details of its Tax registration, e.g. its VAT registration number.

The two declarations may be combined into a single document that is provided to the supplier.

If all eligibility requirements are met, the Recipient will have an obligation to declare the supplies in Box 3, and may recover the Recoverable Tax¹ in Box 10 of its Tax Return, i.e. Box 9 of the Tax Return should not be used to recover the Input Tax.

Compliance requirements for the application of the reverse charge mechanism – supplier

Before the date of supply, the supplier of the Metal Scrap must comply with the following requirements:⁸

Receive and retain the declarations provided by the Recipient.
Verify that the Recipient is a Registrant. The supplier is required to use the functionality provided by the Federal Tax Authority ("FTA") on its website to verify and confirm the Recipient's registration, i.e. using the "TRN verification" tool on the FTA's website.
The Tax Invoice¹ issued shall indicate clearly that the supply of Metal Scrap is subject to the reverse charge mechanism.

Failure to meet the eligibility conditions

If the Recipient did not, prior to the date of the supply, provide the supplier with the declarations outlined above, i.e. declaring that the Recipient is a Registrant and that the Goods are purchased for resale or Processing, then the conditions set out in Cabinet Decision No. 153 of 2025 would not be met, and the supply would be subject to VAT at the standard rate.

In such instance, the supplier has to report such supplies in Box 1 of its Tax Return.

Furthermore, the Recipient would not be considered to have purchased such Metal Scrap to be used or intended to be used to make:⁴

Taxable Supplies, or
Supplies that are made outside the UAE, but would have been Taxable Supplies had they been made in the UAE.

Consequently, the Recipient would not be eligible to recover the Input Tax incurred on such purchase.

Effective date of Cabinet Decision No. 153 of 2025

Metal Scrap supplied on or after 14 January 2026 are subject to the provisions of Cabinet Decision No. 153 of 2025 and must meet the compliance requirements as clarified in this Public Clarification.

This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its Executive Regulation as well as their amendments, and Cabinet Decision No. 153 of 2025 on the Application of Reverse Charge Mechanism on Metal Scrap Trading among Registrants in the State for the purposes of Value Added Tax.

This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.

Legislative References:

In this clarification, Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments, is referred to as "VAT Law", Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax, and its amendments, is referred to as "VAT Executive Regulation", and Cabinet Decision No. 153 of 2025 on the Application of Reverse Charge Mechanism on Metal Scrap Trading among Registrants in the State for the Purposes of Value Added Tax is referred to as "Cabinet Decision No. 153 of 2025".

Article 1 of the VAT Law defines the following terms:
- Business: Any activity conducted regularly, on an ongoing basis and independently by any Person, in any location, such as industrial, commercial, agricultural, professional, vocational, service or excavation activities or anything related to the use of tangible or intangible properties.
- Due Tax: Tax that is calculated and imposed pursuant to this Decree-Law.
- Input Tax: Tax paid by a Person or due from him when Goods or Services are supplied to him, or when conducting an Import.
- Recoverable Tax: Amounts that have been paid and that the Authority may return to the Taxpayer pursuant to the provisions of this Decree-Law.
- Registrant: The Taxable Person who has been issued with a TRN.
- Tax Invoice: A written or electronic document in which any Taxable Supply and its details are recorded, including an Electronic Invoice, as the case may be.
- Tax Return: Information and data specified for Tax purposes and submitted by a Taxable Person in accordance with a form prepared by the Authority.
- Taxable Person: Any Person registered or obligated to register for Tax purposes under this Decree-Law.
- Taxable Supply: A supply of Goods or Services for Consideration during the course of Business by any Person in the UAE, and does not include Exempt Supply.
Article 1 of Cabinet Decision No. 153 of 2025 defines the following terms:
- Metal Scrap: Ferrous or non-ferrous metal waste that have commercial value and is useable following its Processing.
- Processing: The operation through which Metal Scrap is converted into materials that can be used in the manufacturing of new products, whether by repairing, recycling, or any other method.
Article 54(1) of the VAT Law states that Input Tax that is recoverable by a Taxable Person for any Tax Period is the total of Input Tax paid for Goods and Services which are used or intended to be used for making any of the following:

a. Taxable Supplies.

b. Supplies that are made outside the UAE which would have been Taxable Supplies had they been made in the UAE.

c. …
Article 2(4) of Cabinet Decision No. 153 of 2025 states that, where the Recipient of the Metal Scrap does not provide the declarations stated in Clause 3(a) of this Article, the provisions of Clause 1 of this Article shall not apply to him, and such Recipient of Goods may not consider the Metal Scrap as being used or intended to be used for the cases provided for in paragraphs (a) and (b) of Article 54(1) of Federal Decree-Law No. 8 of 2017 referred to.
Article 48(8) of the VAT Law states that the Cabinet may issue a decision specifying other Goods or Services that are subject to the reverse charge and specify the relevant conditions and provisions.
Article 2(1) of Cabinet Decision No. 153 of 2025 states that, where a supplier makes a supply of Metal Scrap to a Recipient registered with the Authority and the intention of the Recipient of Goods was to resell or use them in Processing, the following rules shall apply:

a. The supplier shall not be responsible for accounting for Tax related to the supply of the Metal Scrap, and shall not report such Tax in his Tax Return.

b. The Recipient of Goods shall be responsible for accounting for the Due Tax on such supply, and shall be responsible for all Tax obligations resulting from such supply.
Article 4(1) of the VAT Law states the Tax imposed shall be the responsibility of a Taxable Person who makes any supply stipulated in Article 2(1) of this Decree-Law.
Article 2(3) of Cabinet Decision No. 153 of 2025 states that, for the purposes of the application of Clause 1 of this Article, the following shall be considered:

a. Prior to the date of supply, the Recipient of the Metal Scrap shall comply with the following:
1. Provide the supplier of the Metal Scrap with a written declaration indicating that the intent of the supply of Metal Scrap to him is for the purposes stated in Clause 1 of this Article.
2. Provide the supplier of the Metal Scrap with a written declaration confirming that he is registered with the Authority.
b. Prior to the date of supply, the supplier of the Metal Scrap shall comply with the following:
1. Receive and retain the declarations stated in Clause 3(a) of this Article.
2. Verify that the Recipient of the Metal Scrap is a Registrant, in accordance with the means approved by the Authority in that respect.
3. The invoice must contain an explicit statement indicating the application of the reverse charge mechanism.
Article 1 of the VAT Executive Regulation defines the following terms:
- Direct Export: An Export of Goods to a destination outside of the Implementing State, where the supplier is responsible for arranging transport or appointing an agent to do so on his behalf.
- Indirect Export: An Export of Goods to a destination outside of the Implementing State, where the overseas customer is responsible for arranging the collection of the Goods from the supplier in the State and who exports the Goods himself, or has appointed an agent to do so on his behalf.
Article 2(2) of Cabinet Decision No. 153 of 2025 states that the provisions of Clause 1 of this Article shall not apply if the supply of the Metal Scrap is subject to Value Added Tax at the zero rate in accordance with Article 45(1) of the Federal Decree-Law No. 8 of 2017 referred to.